context: After the Japan-led CPTPP went into force on the last day of 2018, the EU-Japan EPA will soon come into effect. While trade talks with the US have yet to resolve, China continues pushing forward on other plurilateral trade arrangements such as RCEP and the China-EU BIT.
As the Japan-EU economic partnership agreement (EPA) enters into force on 1 February 2019, it will create the largest global free trade area and account for about one third of global GDP, notes International Business Daily.
According to the agreement, the EU will remove 99 percent of tariffs on Japanese goods, including removing the 10 percent import tariff on Japanese cars eight years from enactment; in return, Japan will remove 94 percent of tariffs on European goods, including tariffs on agricultural and aquatic products.
Trade talks between the EU and Japan started in 2013 and sped up in 2018 after the US imposed additional tariffs on their steel and aluminum and threatened to hike tariffs on their cars. Under US pressure, both economies signed the EPA in July last year and passed the deal domestically in December.
Under the EPA, Japanese cars will have easier access to the EU market, which will enable its carmakers to reduce dependence on the US market and compete for US share in the European market. EU carmakers will also face growing competition from their Japanese rivals.
In exchange for a more open EU market, Japan will open up its agricultural market to Europe. Such a change will benefit farmers in Europe but hurt US agricultural exporters.
As for China, Chinese exports of high-end products to the EU will face additional competition from Japan. The China-EU bilateral investment treaty that started negotiation around the same time as the EU-Japan EPA has made little progress.